Union Square Creates New Fund as Social Media Goes Mainstream

Union Square Ventures is putting together a new fund to help it participate in later rounds of funding for growing companies. The VC says the new Opportunity Fund, first hinted at a couple of weeks ago, will allow it to continue to invest in social media and networking start-ups like its existing portfolio companies Twitter, Foursquare and Tumbler as they grow beyond the early stages that the firm has traditionally focused on.

The new fund, which Techcrunch said is $165 million, will complement USV’s core funds said managing director Fred Wilson in a post on the Union Square blog, and will include most of the existing investors from those funds. The new vehicle gives USV the ability to invest from “$250,000 or $25 million,” and participate in later rounds (as an example, the VC firm didn’t participate in the latest $200 million round for Twitter, which was led by Kleiner Perkins). Wilson said investing in social media and networks has become a much bigger opportunity, with some companies getting valued at $50 billion. As the opportunity and competition evolves, it requires USV to think bigger, he said.

“In 2004 the entire market capitalization of the social media sector was probably less than $100M. Today a single company in that sector is valued at over $50B. The amount of venture capital focused on the sector has exploded. Networks that did not exist in 2004 now consume a huge chunk of users’ time and attention, making the launch of new networks more challenging. The opportunity to invest in networks has changed, and once again we are changing with it,” Wilson wrote. “The availability of this additional investment vehicle will allow us to 1) continue to invest in our most established and successful companies, 2) invest in more established networks that have been funded initially by others, 3) invest in special situations like the spin out of a network of scale, and 4) respond to attractive opportunities as the broader market continues to evolve.”

This comes at a time when there’s increasing competition in early stage funding and deals are growing fast and getting done quickly, something Wilson noted last year. While Wilson warned about the activity, the new fund will allow USV to be more stage agnostic and will arm it with the money to get in on deals as they grow. The firm has signed on John Buttrick, a longtime advisor to USV, as a partner in the Opportunity Fund. USV won’t push to put all the money to work, Wilson said, and will only charge fees on the capital invested.